Earnings Call Transcript - PACK Q3 2023

Operator, Operator

Hello, and welcome to the Ranpak Holdings Third Quarter 2023 Earnings Call. My name is Lauren, and I will be coordinating your call today. There'll be an opportunity for questions at the end of the presentation. I will now hand you over to your host, Sara Horvath, Vice President, General Counsel and Secretary, to begin. Please go ahead.

Sara Horvath, Vice President, General Counsel and Secretary

Thank you, and good morning, everyone. Before we begin, I'd like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K and our other filings filed with the SEC. Some of the statements and responses to your questions in this conference call may include forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. Ranpak assumes no obligation and does not intend to update any such forward-looking statements. You should not place undue reliance on these forward-looking statements, all of which speak to the company only as of today. The earnings release we issued this morning and the presentation for today's call are posted on the Investor Relations section of our website. A copy of the release has been included in a Form 8-K that we submitted to the SEC before this call. We will also make a replay of this conference call available via webcast on the company website. For financial information that is presented on a non-GAAP basis, we have included reconciliations to the comparable GAAP information. Please refer to the table and slide presentation accompanying today's earnings release. Lastly, we'll be filing our 10-Q with the SEC for the period ending September 30, 2023. The 10-Q will be available through the SEC or on the Investor Relations section of our website. With me today, I have Omar Asali, our Chairman and CEO, and Bill Drew, our CFO. Omar will summarize our third quarter results and provide commentary on the operating landscape, and Bill will provide additional detail on the financial results before we open up the call for questions. With that, I'll turn the call over to Omar.

Omar Asali, Chairman and CEO

Thank you, Sara, and good morning, everyone. I appreciate you all joining us today. Our overall third quarter financial results demonstrate continued improvement from the start of the year as we saw an increase in volumes, sales, and continued expansion in our gross margin profile in the quarter. The team has done a nice job executing on our initiatives this year and have proven resilient in a continued challenging operating environment. Volumes in the quarter were up 5% over the prior year as activity levels improved somewhat, but remain choppy from one month to the next. I am pleased to have the positive performance year-over-year, but I'm really focused on getting back to consistently higher growth and better execution. Generally speaking, the macro backdrop remains uncertain. Consumers' purchase of discretionary goods remains pressured by the preference for experiences and travel as a percent of wallet share, and consumer spend is increasingly impacted by inflationary pressures and the higher rate environment. Large account activity continues to move down the path of increased volumes in PPS and a meaningful step-up in automation in 2024. So we really like how we are positioned going into next year. We expect the inroads we have made will support and improve 2024 from a volume perspective and validate the improvements that we have made in our business over the past number of years. North America sales were up 4.5% in the quarter versus last year, driven by a mix of higher average selling price products which were partially offset by a small decline in volumes in PPS. Similar to the first two quarters, I would characterize activity levels in the region as decent, but have remained at a fairly muted level since the start of the year. Manufacturing activity remains in contraction territory as businesses contend with greater uncertainty and higher cost of capital impacting investing activity, while at the same time, dealing with tight labor markets and high operating costs. Our outlook for e-commerce activity in the immediate term remains pressured due to lower consumer spending levels on discretionary goods as consumer confidence levels dropped to a four-month low in September amid concerns about higher prices and a possible recession. Medium-term trends are more favorable as consumers' plans to boost their online purchases continue to ramp and the preference for sustainable packaging continues to grow. Just as we are doing, many companies continue to tightly manage their inventory in this higher cost of capital environment with lower end market demand trends. The overall message on the landscape is consistent from what you heard from us in Q1 and Q2. I don't have a clear catalyst for general sell-through to pick up, but I'm pleased with the commitments we are receiving from larger players as they roll out plans for next year to transition from plastic to paper. That shift is occurring in North America, and we are pleased to be at the forefront. Sales in Europe and Asia Pacific were up 20 basis points for the quarter on a constant currency basis. I'm pleased to share volumes were up double digits in the region year-over-year, but this volume growth was offset by the price decrease we provided to our customers in certain regions after we reached our targeted margin levels. Generally speaking, activity levels in the region continue to be weighed on by the slower overall economic environment in Europe and Asia. Manufacturing in Europe remains in contraction territory and services have turned lower as well due to economic malaise and monetary tightening taking place in response to inflationary pressures. Higher borrowing costs for businesses and consumers continue to impact spending and investment habits across the region. Asia is mixed, with places like Australia, Japan and New Zealand doing well, China doing okay, and South Korea struggling due to weaker electronic shipments. Similar to last quarter, the volume environment remains inconsistent, with some solid months being followed by a month with lackluster performance. In Q3, July and August were both pretty strong relative to last year, but we saw a step back in September as activity levels pulled back, particularly in North America, given the economic uncertainty, which took its toll on the consumer. We expect the fourth quarter to be similarly choppy, but with an uptick in volumes due to seasonality and continued margin improvement. Input costs continue to be favorable overall, and we saw the continued improvement in gross margin in North America that we expected. We continue to aggressively manage headcount and new projects to keep a lid on our spending profile. Ads currently are really only in absolutely critical areas and those that we need to fulfill what we believe will be upcoming demand in 2024. The company as a whole is focused on cash flow generation and productivity initiatives to improve our profile and extract maximum value out of the investments we made. Now with that, let me turn it over to Bill for some financial detail.

Bill Drew, CFO

Thank you, Omar. In the deck, you'll see a summary of some of our key performance indicators. We'll also be filing our 10-Q, which provides further information on Ranpak's operating results. Machine placement increased 2.5% year-over-year to 142,000 machines globally. Cushioning systems declined 1.7%, while void-fill installed systems increased 4.3% and wrapping increased 2.3% year-over-year. We continue our fleet optimization efforts and are focused on minimizing CapEx spend on new converters by refabricating and refurbishing as many machines as possible. Overall, net revenue for the company in the third quarter increased 1.9% year-over-year on a constant currency basis, driven by higher volumes and slightly offset by pricing headwinds in our Europe and Asia reporting region due to lower input costs being shared with our customers. North American net revenue increased 4.5% versus the prior year, driven by a combination of new account activity and strength in void-fill. In Europe and APAC, net revenue on a constant currency basis was roughly flat at 0.2% year-over-year as volumes increased nicely from a year ago, partially offset by pricing drop. Cushioning was a bright spot in the region with most of our cushioning products outperforming year-over-year, and in particular, our Guardian solution, which is seeing continued solid adoption. Base volumes in Europe remained steady but have not demonstrated a material uptick due to the lower economic activity in the region. Automation sales increased year-over-year and represented approximately 6% of sales on a constant currency basis. Our solutions set of Cut'It!, AutoFill and Flap'it! continues to gain traction. We are excited to utilize our additional manufacturing capacity going into 2024. We made further progress on gross margin improvement in the quarter. Although our top line improved roughly 2%, the improved volumes and better input cost environment in the third quarter drove gross profit to increase 23% year-over-year on a constant currency basis, implying a margin of 38.2% compared to 31.5% in the prior year. This is approximately 1,000 basis points of improvement from the 28.1% constant currency gross margin we experienced in Q4 of 2022. We are pleased with this continued sequential improvement throughout this year and look to peak in the fourth quarter as more expected volumes flow through and help us to better absorb overhead. Constant currency adjusted EBITDA increased 8.4% year-over-year to $18 million, implying a 21% margin driven by improved gross profit, offset somewhat by increased G&A as overall personnel costs are higher, and we have invested in key areas to support our 2024 plans. As we get into the fourth quarter, we expect our financial performance to improve as we get into the highest volume portion of the year traditionally. Input costs remain attractive for us to improve our margin profile going into year-end. Capital expenditures for the quarter were $9.7 million, driven by $6.5 million in converter equipment spending and approximately $3.2 million in project spending related to our real estate projects and other investments. We continue to place a strong emphasis on minimizing CapEx projects and converter spending to maximize cash flow generation for the remainder of the year. Moving briefly to the balance sheet and liquidity. We completed Q3 with a strong liquidity position, including a cash balance of $52.1 million to end the quarter and no drawings on our revolving credit facility. Our net leverage based on reported LTM constant currency adjusted EBITDA was 5.6 times at the end of the quarter and 5.8 times based on the bank adjusted EBITDA ratio. We believe leverage has peaked as the fourth quarter is expected to be a favorable comparison from an adjusted EBITDA perspective, and we expect to maintain a similar cash balance for the remainder of the year. We are hopeful this will be a good initial step towards getting back to our targeted leverage ratio of three turns or below. The only remaining strategic project items that will carry into next year is the final $1 million for the Malaysia project. We are excited to be through the large investment phase of the past couple of years, moving back towards a profile of cash maximization. The team has diligently managed working capital to maximize our cash position, and we'll continue to keep this as a key area of focus. With that, I'll turn it back to Omar before we move on to questions.

Omar Asali, Chairman and CEO

Thank you, Bill. In conclusion, we are making progress despite a challenging environment. While we have much work ahead of us financially to reach our goals, volumes seem to be stabilizing and improving. Year-to-date, gross margins have significantly increased and are approaching our targets. I believe we can enhance our G&A efficiency using the tools we have invested in and will maintain focus in this area. We have managed cash effectively, and will continue to control CapEx as we move out of our major investment cycle. Given the ongoing uncertainty in the markets due to interest rates, inflation, resuming student loan payments, and potential conflicts in the Middle East, I think it will be difficult to achieve the lower end of our adjusted EBITDA range. We will strive to reach it, and I am confident we will surpass last year's performance. However, reaching the $76 million target requires a lot of favorable conditions, and I lack confidence in this environment. While it is disappointing, it reflects the reality we are facing. We anticipate a strong finish in Q4, but it may not suffice to meet our annual range. We have built an exceptional infrastructure over the past couple of years, and I believe 2024 will be a year where our hard work and investments begin to yield results. We expect the large account activity we are pursuing in PPS to start reflecting in our order book as North America transitions from plastic to paper. Our automation infrastructure, coupled with our blind product offerings, is unparalleled. We now have the pipeline and bookings necessary for financial progress in this area, having made significant investments that have impacted our overall P&L. My confidence stems from the positive feedback we are receiving from the market regarding our machines and service capabilities. Customers and key integrators are recognizing our value and are now choosing Ranpak Automation as their preferred partner. We have secured several key automation projects for delivery in 2024, which we anticipate will lead to significant growth in additional facilities in subsequent years. The quality of our machines and services distinguishes us in the industry. I believe 2024 will be a pivotal year as we demonstrate the potential of our automation solutions and reveal what we have built. Many initial successes are with customers who can scale alongside us as we validate our offerings. Ranpak's growth in 2024 and beyond will be built on several key elements. First, the PPS business is expected to continue growing in the high single-digit to low double-digit range. Major new accounts, new products, expansion in Asia, and sustainability trends will drive this growth. Second, automation holds significant potential for Ranpak and will propel us into the next phase. While this business has not significantly contributed to the top line thus far, we foresee it becoming a major contributor in the coming years due to rising demand for box customization and automated end-of-line solutions. I am very confident in our offerings and look forward to launching new solutions like Decision Tower in 2024. Third, cold chain is another area where we can make progress and tap into a burgeoning market. We acknowledge that we are newcomers in this field, but believe sustainable cold-chain solutions will eventually become standard in the market, presenting a vast opportunity. The intersection of sustainability and automation presents a unique chance for growth. We are focused and determined to achieve ambitious goals and aspirations. The past few years have been challenging, yet our investments in infrastructure and technology took place during a tough macroeconomic environment. However, I truly believe that all the challenges we have faced will be worthwhile in the long run. Our primary aim remains to deliver sustainable and profitable growth that creates value for our shareholders. Ultimately, I believe we can build a company that achieves high single-digit to low double-digit growth, EBITDA margins in the high 20s to low 30s, and generates significant cash flow. Now, let's open the call for questions.

Operator, Operator

Our first question comes from Greg Palm from Craig-Hallum Capital Group. Greg, please go ahead.

Greg Palm, Analyst

Good morning, everyone. Omar, could you provide more insight on your closing comments regarding 2024? I understand the macroeconomic factors are beyond your control, but you mentioned several trends that appear favorable, such as the reacceleration in automation and the transition from plastic to paper, alongside the positive momentum among some of your larger clients. Additionally, there are no destocking challenges. Can you elaborate on your perspective for 2024? You mentioned expectations of high single-digit to low double-digit growth. Is that specifically for 2024 or does it reflect a more long-term outlook?

Omar Asali, Chairman and CEO

Yeah. Good morning, Greg. I think the comment about the growth rates was a bit more, I would say, medium-term in nature rather than specifically hitting 2024. What we are seeing in 2024 is very encouraging. It's the trends that you highlighted, large accounts, in particular, in the US. In many cases, we have trials, we have equipment. We're doing a lot of work with them about switching a big portion of their business and with some large accounts, all of their business away from plastic into paper. As you know, the cadence with our business is in Q4, people hesitate to switch given peak season. So that activity right now, which has been ongoing for trials, I assume will pick up in early 2024, and hopefully, will translate into closings at the beginning of the year. But the level of engagement with our large accounts and in our pipeline is very, very healthy. In automation, in this quarter, we had a record bookings quarter. So the largest bookings ever since we've entered the automation business. And that means this is equipment that now we're building in order to deliver to customers in 2024. So we're starting to see actual visibility around orders and bookings from customers who want to basically order our equipment. And in many cases, these are large customers. If we execute and deliver, which we believe we will, these are customers that have many DCs and many facilities that we think our end-of-line solutions can roll into their added sort of facilities. So that's another reason for our excitement. So if I look at the mix of trial pipeline in PPS, if I look at the bookings for automation, all these are indicating healthy things. The hesitation we have, Greg, which is similar to any other company, is the macro environment and the backdrop. And frankly, the inconsistent environment where I feel every time we are making good progress, gaining market share, something happens in the environment, whether it's related to the rate or to geopolitics or to consumer sentiment, that just makes us a little bit cautious about where we're heading. But I think what I'm seeing in terms of our execution and the cadence for our own business, there is a lot to like. And I think all that bodes well for 2024.

Greg Palm, Analyst

Yeah, that's helpful. When you mention record bookings in automation, are you referring to millions or tens of millions? Just to clarify, are these for trials in a couple of data centers, or are they more large scale?

Omar Asali, Chairman and CEO

Yeah, I am talking in the multiple millions for just this quarter, which is a cadence we want to build on and close to tens of millions, let's say. So that's what we're seeing in bookings, again, in just one quarter, which should bode to very good growth in 2024. And we're seeing that trend continue, again with large customers and with medium-sized customers. And just to be exact, what I mean by bookings, these are orders and equipment purchased by customers that don't show in our revenue because we just booked the deal and we will be building now the equipment to deliver that solution, let's call it, sometime in 2024. In some cases, in the first half, in some cases in the second half. So it's a very good leading indicator of actual wins that we have that once we build the equipment will become revenue. So it's a bit better than just a pipeline or a trial.

Greg Palm, Analyst

Understood. Okay. And then just lastly, on the core PPS business. I know you talked about September trends. Can you give us kind of some sense of how trends were or have been in October? And it still sounds like you're expecting some sort of seasonal ramp in Q4, is that right?

Omar Asali, Chairman and CEO

Sure. Yeah. I mean look, and I mentioned it in the comments, this year has been inconsistent. I would say from what I'm seeing from our customers and our own activity, I'm pleased with how we're executing in Q2 and Q3 of this year. I think it's noticeably better than how we were executing in '22 and earlier in 2023. The challenge is the environment, given the choppiness and inconsistencies, honestly, it's very tough to book three robust months in a row. So in this particular quarter, July and August were very strong months, September was a little bit softer. In prior quarter, in Q2, if I recall properly, I think April was on the soft side, May and June picked up. So we're seeing that pattern where every quarter, there's a month or a few weeks of period of softness. To answer you on October, since we're at the end of October, October has been a strong month. Now hopefully, that's an indication of what November and December are going to be. And we're trying to ramp up and get ready for a busy season. But frankly speaking, the world changes and it changes sometimes pretty quickly, and we're trying to react to our customer needs. The one thing that I will tell you has been consistent around that period that I think other companies are seeing is no one is in the mood of building their inventory level and ordering and anticipating good activity. Everybody is being cautious. I would say we continue to see customers that prefer to almost run out of product and scramble last minute to get product versus carrying too much on their shelf. And that dynamic is making it very, very difficult to forecast. But I think we delivered an okay quarter despite a little bit of softness in September. And then October, as I said, is off to a strong start.

Greg Palm, Analyst

Okay. That’s really helpful. I’ll leave it there. Best of luck. Thanks.

Omar Asali, Chairman and CEO

Thank you, Greg.

Operator, Operator

Thank you. Our next question comes from Ghansham Panjabi from Baird. Ghansham, please go ahead.

Ghansham Panjabi, Analyst

Thank you, operator. Good morning, everybody. Omar, I just want to go back to the volume cadence throughout the third quarter, which obviously has been very choppy as you referenced in the second quarter as well. If you sort of set aside the macro, which is just the obvious and you kind of drill down into some of the micro details in terms of the supply chain, is it just the fact that maybe customers destock inventory aggressively previously and that's sort of been optimized and now we're just sort of reflecting just month-to-month volatility from a macro standpoint? Or what do you attribute that towards?

Omar Asali, Chairman and CEO

Yeah. I think destocking, Ghansham, and good morning, is largely behind us with very, very few exceptions. We're not seeing that as an issue anymore, frankly, globally. So that applies to APAC, to Europe, and to US customers. I think what we are seeing is a little bit of nervousness at the company level, a little bit, obviously, and it's related to what's happening at the consumer level and industrial activity. And I think you're seeing some of that volatility where people do not want to carry a lot of product. And frankly, order patterns are a bit more conservative, and headlines don't help in that effort. So I think some of these factors are causing the quarterly activity, if you will, to be a little bit more inconsistent. Now within that, there are trends that we all know, Ghansham, that we see them manifesting themselves in our business. Smaller accounts and companies are struggling in this environment, larger accounts are getting bigger. In our business segments, we see in wrapping more softness and that's driven by certain retailers in home furnishings or in consumer goods, in particular, the more durable expensive consumer goods where they might be adding a little bit of wrapping solution. We're seeing more softness in those. We're seeing the cushioning part of our business continue to perform and be very consistent. And in void-fill, frankly, it's a little bit dependent on what's happening in e-commerce. And not just broadly in e-commerce, because if it's e-commerce that's more grocery-related and small items related, that's not typically where we play. If it's more the slightly more weighty items, if you will, that require our solutions, then that's where you see our product being consumed. So the reasons, honestly, varied, I would say, in void-fill and cushioning overall, we feel okay despite that volatility. In wrapping, this is the new reason why we've been innovating quite a bit and coming up with solutions to address market needs and price sensitivity from some of our customers. The softness has been a bigger disappointment and a bigger surprise for us.

Ghansham Panjabi, Analyst

And that softness is more pronounced on a monthly basis in North America or Europe? Or is it equally sort of distributed?

Omar Asali, Chairman and CEO

I would say probably a little bit more pronounced in North America than in Europe. And I would say, in Asia, depending on the country, there's quite a bit of monthly volatility. So what we see, in particular out of China, South Korea, etc., can be pretty pronounced in terms of volume. I would say Europe has been a little bit more consistent. And then certainly, places like Japan and Australia have had a better cadence.

Ghansham Panjabi, Analyst

Okay. Finally, regarding your commitment to reducing debt, you mentioned the liquidity position. However, you also have significant debt tranches coming up for renewal, and the swap will expire in June next year, which will increase your cash costs. What is your strategy for deleveraging? Is it primarily based on improving EBITDA and achieving a certain level of free cash flow conversion? How should we view your progress towards reaching your target of under three times leverage?

Omar Asali, Chairman and CEO

Sure. The first step is to improve EBITDA. We expect that by the end of this year, in Q4, we will reach a high-4 range, which is a significant positive shift. Considering all the discussions and outlook shared for 2024, we believe this trend will continue in our favor. Additionally, next year, with the swap situation, we will focus on optimizing based on the cost of capital and the financing environment at that time. We anticipate that through EBITDA growth, we could see a meaningful reduction in the near term. Now, I'll let Bill provide more details.

Bill Drew, CFO

Yeah, Ghansham, just on the deleveraging, right? I mean that's a top priority for us as an organization. So priority number one is continue to increase EBITDA and hit numbers, so continue each quarter to get that leverage ratio down. And when we get below that five turns, right, that will save us 25 basis points on our interest expense just based on the leverage ratio. And then throughout next year, right, focus on cash maximization and get ourselves ready to hit the refinancing market. The maturity is June 26, right? So we've got some time, but we want to do it from a position of strength. So top priority for the organization is minimize CapEx. The nice thing is we are through the majority of our major investment cycle between the ERP and IT investments as well as all the real estate investments, which are coming to an end this year with only a small part carrying over into next year. That will really help us focus on maintaining our cash balance and growing it as we exit next year.

Ghansham Panjabi, Analyst

Thanks so much.

Operator, Operator

Thank you. Our next question comes from Adam Samuelson from Goldman Sachs. Adam, please go ahead.

Adam Samuelson, Analyst

Yes, thank you. Good morning, everyone.

Omar Asali, Chairman and CEO

Good morning, Adam.

Adam Samuelson, Analyst

Hi. So I guess, first, just going back to the cash flow discussion and that path to deleveraging. Can we talk about the free cash flow margins when you get to those target EBITDA margins, Omar, that you talked to earlier in the high 20s? What do you think kind of the CapEx to sales looks like at that run rate? What do you think the free cash flow, the EBITDA to free cash conversion actually looks like?

Omar Asali, Chairman and CEO

Sure. I'll let Bill take that one, Adam. I want to reiterate that as we reach that profile and achieve some scale in automation and cold chain, these businesses do not require the same upfront capital expenditures for our razor/razor blade business in PPS. This will slightly adjust the numbers to enhance the cash profile. But I'll let Bill explain it further.

Bill Drew, CFO

Yeah, Adam. I think the way to think about it, right, is that the PPS business, which we expect to continue to grow, as Omar mentioned, in that kind of high single-digit, low double-digit area, the CapEx as a percentage of sales, I think, in the near term should be in that high single digit to double-digit range. We're focused on a lot of refabrication and refurbishment of machines to minimize the converter spend. And then over the longer term, we would expect that to get back to close to that 10% to 12% of sales for the PPS business just on the converter spend. Overall, right, as automation grows, that business, it's a bit of a different profile than the PPS business. The gross margins for that business should be in the high 20s, 30%, EBITDA margins of around 20%, high teens. But the nice thing about it is there's minimal CapEx. We're not investing in CapEx in order to grow that business outside of the facilities which we've already done. So over time, the CapEx as a percentage of sales for that business should be low single digits. So if you think about your model over the next number of years, getting that CapEx as a percentage of sales down from the low double digits to kind of the mid- to high single digits is what we're planning for here. So if you think about kind of a 30% EBITDA margin, high 20s, 30% EBITDA margin minus the overall CapEx, you should be in the high teens area as a percentage of sales, if that helps you.

Adam Samuelson, Analyst

Yes, it does. If we look back at the core PPS business, the growth in the installed base has slowed recently due to economic conditions. It's notable that while there have been some sequential declines in cushioning, the most significant drops in throughput and pressure appear to be in wrapping. Considering the current challenges in wrapping, including economic and volume difficulties with your customers' sales, do you foresee any opportunities to optimize the installed base? Could there come a time when you determine that the asset base isn’t performing as effectively as anticipated and that adjustments in customer placements are necessary to move the business forward?

Omar Asali, Chairman and CEO

I think we're constantly doing that, and we've had a big focus on that, Adam, the last number of quarters, and this is why Bill was referring to sort of the refabs and refurbishing some of the equipment. And we're doing some of that in retail. But the other thing that we're doing in retail, and this is what I was alluding to earlier for some of our wrapping customers, a big part of our solution has been helping retailers, if you will, ship from DCs and from their warehouse. And now we're introducing a number of products to help ship from store, whether it's just the back of the store or actually the front of the store. And these are very different type of converters, different type of equipment. If you're doing stuff in the front of the store, they tend to be a lot smaller, have a much smaller footprint to fit and have different aesthetics. And we've been launching some of these things, and we continue to focus on that pipeline for the near term, i.e., in the next couple of quarters. So we think from a converter standpoint, you may see some pickup of number of converters that are out there as we have that ship from store footprint. But per converter, these are a lot cheaper per unit cost for us, and we're hoping that they will be driving a lot more volume given what we're seeing from some of our retail customers. So it's a little bit of just changing the mix and the service that we're providing to some of the wrapping customers where we feel the last couple of quarters, our focus on what's happening in the warehouse and DCs has not been the optimal focus given the activity that some of these retailers are seeing and what they're trying to do in terms of optimizing their footprint and use the store to help with fulfillment.

Adam Samuelson, Analyst

Okay. I appreciate that color. I’ll pass it on thanks.

Omar Asali, Chairman and CEO

Thank you.

Operator, Operator

Thank you. We have no further questions. So I'll now hand back over to Bill Drew for closing remarks.

Bill Drew, CFO

Thank you, Lauren, and thank you all for joining us today. We look forward to seeing you next quarter.

Operator, Operator

Thank you, everyone. This concludes today's call. Thank you for joining. You may now disconnect your lines.